Finance 301 - Midterm 1 Exam Questions with Correct Answers Latest Update 2025/2026
You have a chance to buy an annuity that pays $16,000 at the beginning of each year for 5 years.
You could earn 4.5% on your money in other investments with equal risk. What is the most you
should pay for the annuity? - Answers $73,400.41
Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays
11.4% interest, compounded annually. How much will you have when the CD matures? -
Answers $5,886.84
Ratio analysis involves analyzing financial statements to help appraise a firm's financial position
and strength. - Answers True
What's the present value of a perpetuity that pays $3,000 per year if the appropriate interest rate
is 5%? - Answers $60,000.00
EBITDA stands for earnings before interest, taxes, debt, and assets. - Answers False
Suppose you just won the state lottery, and you have a choice between receiving $2,575,000
today or a 20-year annuity of $250,000, with the first payment coming one year from today.
What rate of return is built into the annuity? Disregard taxes. - Answers 7.37%
Bob has $2,500 invested in a bank that pays 6.8% annually. How long will it take for his funds to
double? - Answers 10.54 years
Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end
assets were $250,000. The firm's total-debt-to-total-capital ratio was 15.0%. The firm finances
using only debt and common equity and its total assets equal total invested capital. Based on
the DuPont equation, what was the ROE? Do not round your intermediate calculations. -
Answers 8.94%
How much would $1, growing at 12.1% per year, be worth after 75 years? - Answers $5,253.16
How much would $30,000 due in 50 years be worth today if the discount rate were 7.5%? -
Answers $806.67
Your uncle is about to retire, and he wants to buy an annuity that will provide him with $57,000
of income a year for 20 years, with the first payment coming immediately. The going rate on
such annuities is 5.25%. How much would it cost him to buy the annuity today? - Answers
$732,041.84
Suppose a U.S. treasury bond will pay $1,700 five years from now. If the going interest rate on 5-
year treasury bonds is 4.25%, how much is the bond worth today? - Answers $1,380.60
Market value ratios provide management with an indication of how investors view the firm's
past performance and especially its future prospects. - Answers True
You have a chance to buy an annuity that pays $16,000 at the beginning of each year for 5 years.
You could earn 4.5% on your money in other investments with equal risk. What is the most you
should pay for the annuity? - Answers $73,400.41
Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays
11.4% interest, compounded annually. How much will you have when the CD matures? -
Answers $5,886.84
Ratio analysis involves analyzing financial statements to help appraise a firm's financial position
and strength. - Answers True
What's the present value of a perpetuity that pays $3,000 per year if the appropriate interest rate
is 5%? - Answers $60,000.00
EBITDA stands for earnings before interest, taxes, debt, and assets. - Answers False
Suppose you just won the state lottery, and you have a choice between receiving $2,575,000
today or a 20-year annuity of $250,000, with the first payment coming one year from today.
What rate of return is built into the annuity? Disregard taxes. - Answers 7.37%
Bob has $2,500 invested in a bank that pays 6.8% annually. How long will it take for his funds to
double? - Answers 10.54 years
Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end
assets were $250,000. The firm's total-debt-to-total-capital ratio was 15.0%. The firm finances
using only debt and common equity and its total assets equal total invested capital. Based on
the DuPont equation, what was the ROE? Do not round your intermediate calculations. -
Answers 8.94%
How much would $1, growing at 12.1% per year, be worth after 75 years? - Answers $5,253.16
How much would $30,000 due in 50 years be worth today if the discount rate were 7.5%? -
Answers $806.67
Your uncle is about to retire, and he wants to buy an annuity that will provide him with $57,000
of income a year for 20 years, with the first payment coming immediately. The going rate on
such annuities is 5.25%. How much would it cost him to buy the annuity today? - Answers
$732,041.84
Suppose a U.S. treasury bond will pay $1,700 five years from now. If the going interest rate on 5-
year treasury bonds is 4.25%, how much is the bond worth today? - Answers $1,380.60
Market value ratios provide management with an indication of how investors view the firm's
past performance and especially its future prospects. - Answers True
